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Obama's big-bank tax: Which firms would pay it -- and could they just pass it on?

January 14, 2010 | 4:22
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The Obama administration’s proposed “financial crisis responsibility fee” would hit the nation’s biggest names in banking, brokerage and insurance with a new tax aimed at raising about $9 billion a year for federal coffers.

Here’s a look at some of the details of the plan, which must be approved by Congress:

--- Which companies would pay the fee? The plan targets financial companies with more than $50 billion in assets. The administration estimates that the list of covered firms would number about 50 -- about 35 U.S. companies and 10 to 15 U.S. subsidiaries of foreign firms.

Brokerage firm Keefe Bruyette & Woods today pulled together a list of the companies it figures would be subject to the fee. Among big banks and credit-card issuers, the names include Bank of America, JPMorganChase, Citigroup, Wells Fargo, PNC Financial, U.S. Bancorp, SunTrust Banks, UnionBanCal (parent of Union Bank of California), Comerica, American Express and Capital One.

In the insurance sector the names include MetLife, Prudential Financial, Hartford Financial and Lincoln National. The administration also says that American International Group would be subject to the fee, even though the bailed-out firm already is 80% owned by the government.

--- How much would the companies pay Uncle Sam? The fee would total 0.15% of a company’s covered liabilities each year for at least the next 10 years.

--- Which liabilities would be covered, and why tax liabilities as opposed to assets? A financial company’s liabilities are the funds it has raised (via deposits or by borrowing) to make loans or buy investment securities. By imposing the fee on liabilities the administration says it would “place the heaviest burden on the largest firms that have taken on the most debt.”

A fee on liabilities would provide “a deterrent against excessive leverage” by the companies, the White House says, thereby reining in the level of risk the firms are taking and the risk they pose to the financial system. That’s the theory, at least.

Some liabilities would be exempt from the fee, however -- in particular, deposits on which which a company already pays insurance fees to the Federal Deposit Insurance Corp.

--- How much would the fee shave from the companies’ earnings? Expressed as a percentage, that would depend on what earnings turned out to be, of course. But Keefe estimated that, based on its current 2011 earnings estimates, per-share results would be reduced by 14% at Bank of America, 9% at JPMorgan Chase, 5% at Wells Fargo and 10% at Goldman Sachs.

Another brokerage, Ladenburg Thalmann, estimated that 2011 earnings per share of the biggest banks would be reduced by 7%, on average.

--- Can’t the companies just pass on the fee to customers? That’s exactly what some on Wall Street are threatening.

“Costs are generally passed on to customers in our industry,” Timothy Ryan, president of the Securities Industry and Financial Markets Assn., said in a statement. “While we still don’t have the full details yet, it’s more than likely that the burden of this tax will fall on institutions and individual investors who are clients of these firms.”

The administration is betting otherwise.

“If those people chose to pass on those costs they would face a competitive disadvantage from the far, far large number of financial firms who are excluded from this fee,” said a senior administration official, speaking on the usual condition of anonymity. “We think they have a competitive incentive not to pass this fee on.”

The White House also wants to believe the banks will opt to take a moral high ground. (Insert your own guffaw or snicker here.)

“It will just seem beyond the pale to the typical American to hear of the bonus pools in the $10- to $15- to $20-billion level in the coming weeks and then suggest that the only way they could pay this financial crisis responsibility fee back to the American taxpayer is to pass on the cost,” the official said.